Housing Affordability: Why Where Matters As Well As What

Unfortunately there is a tendency in discussions on housing affordability to remain quite siloed. The government seems to be only concerned with land supply as the key to addressing affordability, financial commentators privilege access to loans and other financial instruments, and developers stress construction overheads and compliance costs. Other observers, like this blog, are keen to point out city regulations that inhibit compact and attached building typologies as barriers to better dwelling affordability. It is clear that all of these are important contributors to the problem and it is not my intention here to dismiss any of the above, but rather I want to add another that I think gets even less attention but that is just as important. Location specific overheads.

People aren’t stupid. When looking for somewhere to live they automatically calculate all the costs and benefits of any possible dwelling and the biggest single cost after the direct property costs [mortgage, rates, rents] is transportation. In fact consideration of transport costs is really indivisible from direct dwelling costs in calculation of affordability. Any analysis that fails to understand locational costs in addition to land, construction, and financing costs is likely to remain deeply flawed.

The Victoria Transport Policy Institute’s Todd Litman describes this as Affordable-Accessible Housing and discusses it throughly in this paper. What follows is a quick summary of this work.

These figures are from Canada but there isn’t too much reason to believe that the general thrust wouldn’t also hold for Auckland. Vancouver like Auckland is doing well so therefore has a growing population and pressure on its existing housing stock. Also while Vancouver’s Public Transit systems are much better than Auckland’s it remains true for Auckland that service is better the closer to the centre you get, and it is therefore more possible and cheaper to get around using Public Transit in the inner suburbs and city. This balance is clearly reflected in dwelling prices too. People are clearly willing to pay more to avoid life on the motorways.

You can see that the construction costs are basically constant for each type but that the land and the transportation costs vary depending on the location. Land is more expensive as the location becomes more desirable, but transportation costs increases as the location moves further out. But also note that the biggest cost determinant is building size and type. So even the most expensive 100m^2 apartment is cheaper than the cheapest townhouse or detached house. Size does matter, as does type.

It is also important to note that both housing and transport costs form a greater proportion of people’s expenditure the poorer they are:

Perhaps because the costs of car ownership are either minor or born by employers or absorbed as a business overhead by many players and commentators in the property field that the reality of these costs for those on lower incomes are too easily overlooked. When vehicle cost is either insignificant or not born directly then car ownership can is likely to be viewed as a source of pleasure and an opportunity for expression of status and individuality. This personal experience muddies the appreciation of the burdens of car ownership on many in an auto-dependant society. Car ownership and all its attendant costs are just assumed to be covered for ‘normal’ people. This is how locational overheads can be ignored.

This analysis is supported by the existence of available and keenly priced dwellings in fringe and distant locations. Why else do they remain undesirable? They are not in practice as affordable as they seem because their location is expensive to operate from. Isolation while sought after by those with the money and preference for lifestyle blocks is an expensive burden for those at the other end of the socio-economic scale.

Even if a dwelling is built cheaply on cheap land and comes with supported financing, it may still fail to be affordable in practice because of its separation from employment, education, medical, and other social amenity, particularly if it is underserved by Public Transport.

Experts recommend spending less than 32% of total household budget on housing (rents or mortgages, basic utilities and maintenance) and less than 18% on transportation, or 45% on housing and transport combined. Many lower- and middle-income households exceed these levels (Figure ES-1).

The most expensive form of transport for poorer households are private vehicles. If a dwelling is poorly connected to public services and employment then in order for adults to get to work, as well as for the elderly, children, and infirm in those households to function will be dependant on buying, maintaining, and running multiple vehicles. This section of society often gets into debt with private lenders over vehicles and over-extension on these loans can often be the source of default and failure to meet other commitments.  High transport cost due to the dispersed nature of habitation, employment, and services is a very real contributor the problem of people remaining trapped in negative income.

Careful consideration of the location of affordable housing as well the continued improvement in Public Transport services and attention to barriers to its use [cost, frequency and suitability of services] are two vital tools in improving the lives of all Aucklanders and the economic performance of the whole city. Transport poverty is a drain on productivity.

People who live or work in more accessible, multi-modal areas have better access to goods, services and activities, tend to own fewer vehicles, drive less, and rely more on alternative modes than in more automobile- oriented, sprawled communities.

Housing with more affordable locational attributes enable people to turn up to work more regularly, are more able to meet their housing payments, and are more likely to get family members to medical services earlier and whose children are more likely to arrive at school having had breakfast or at all.

Communities must respond to changing demands and conditions. Current demographic and economic trends are increasing demand for affordable-accessible housing, and increasing the benefits to society of accommodating this increased demand.

So in summary: To truly address the problem of housing affordability we need to address all of the following:

Land cost

Construction and Compliance cost

Locational cost

Financial barriers

The types of dwellings that are best suited to meeting all of these criteria are more likely to be smaller, attached dwellings on brownfields sites well served by public transport and local community services and facilitated by a fast tracked consenting and funding programme.

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